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The Writes of the Media
The bubble was aided and abetted by the media, which
turned us into a nation of traders. Like the stock market,
journalism is subject to the laws of supply and demand. Since
investors wanted more information about Internet investing
opportunities, the supply of magazines increased to fill the
need. And since readers were not interested in downbeat
skeptical analyses, they flocked to those publications that
promised an easy road to riches. Investment magazines
featured stories such as “Internet stocks likely to double in
the months ahead.” As Jane Bryant Quinn remarked, it was
“investment pornography”—“soft core rather than hard core,
but pornography all the same.”
A number of business and technology magazines devoted
to the Internet sprang up to satisfy the insatiable public
desire for more information.
Wired
described itself as the
vanguard of the digital revolution. The
Industry Standard
’s
IPO tracker was the most widely followed index in Silicon
Valley.
Business 2.0
prided itself as the “oracle of the New
Economy.” The proliferation of publications was a classic
sign of a speculative bubble. The historian Edward Chancellor
pointed out that during the 1840s, fourteen weeklies and two
dailies were introduced to cover the new railroad industry.
During the financial crises of 1847, many of the rail
publications perished. When the
Industry Standard
failed in
2001, the
New York Times
editorialized, “it may well go
down as the day the buzz died.”
The Internet itself became the media. No longer did the
individual investor have to consult the
Wall Street Journal
or
call a broker to get a stock’s price quote. All the information
needed was available online in real time. The Web provided
stock summaries, analyst ratings, past stock charts, forecasts
of next quarter’s earnings and long-term growth, and instant
access to any news items about most any stock. The Internet
had democratized the investment process, and it played an
important enabling role in perpetuating the bubble.
Online brokers were also a critical factor in fueling the
Internet boom. Trading was cheap, at least in terms of the
small dollar amount of commissions charged. (Actually, the
costs of trading were larger than most online brokers
advertised, since much of the cost is buried in the spread
between a dealer’s “bid” price, the price at which a customer
could sell, and the “asked” price, the price at which a
customer could buy.) The discount brokerage firms advertised
heavily and made it seem that it was easy to beat the market.
In one commercial, the customer boasted that she did not
simply want to beat the market but to “throttle its scrawny
little body to the ground and make it beg for mercy.” In
another popular TV commercial, Stuart, the cybergeek from
the mailroom, was encouraging his old-fashioned boss to
make his first online stock purchase with the exhortation
“Let’s light this candle.” When the boss protested that he
knew nothing about the stock, Stuart said, “Let’s research it.”
After one click on the keyboard, the boss, thinking himself
much wiser, bought his first hundred shares.
Cable networks such as CNBC and Bloomberg became
cultural phenomena. Across the world, health clubs, airports,
bars, and restaurants were permanently tuned in to CNBC.
The stock market was treated like a sports event with a pre-
game show (what to expect before the market opened), a
play-by-play during trading hours, and a post-game show to
review the day’s action and to prepare investors for the next.
CNBC implied that listening would put you “ahead of the
curve.” Most guests were bullish. CNBC’s commentators like
Maria (the money honey) Bartiromo particularly favored
scheduling interviews with analysts who could say with
confidence that some $50 dot-com stock would soon go to
$500. There was no need to remind a CNBC anchor that, just
as the family dog that bites the baby is likely to have a short
tenure, sourpuss skeptics did not encourage high ratings.
The market was a hotter story than sex. Even Howard
Stern would interrupt more usual discussions about porn
queens and body parts to muse about the stock market and
then to tout some particular Internet stocks.
Turnover reached an all-time high. The average holding
period for a typical stock was no longer years or months but
days and even hours. Redemption ratios of mutual funds (the
percentage of the funds’ assets redeemed) soared, and the
volatility of individual stock prices exploded. The ten most
volatile stocks in each trading day used to rise or fall by 5
percent. By early 2000, the biggest price changes were 50
percent or more. And there were 10 million Internet “day
traders,” many of whom had quit their jobs to go down the
easy path to riches. For them, the long term meant later in the
morning. It was lunacy. People who would spend hours
researching the pros and cons of buying a $50 kitchen
appliance would risk tens of thousands on a chat-room tip.
Terrance Odean, a finance professor who studies investor
behavior, found with his colleagues that most Internet traders
actually lost money even during the bubble, systematically
buying and selling the wrong stocks, and that they performed
worse the more they traded. The average survival time for
day traders was about six months.
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